RESULTS OF THE ML/TF NATIONAL RISK ASSESSMENT - REPUBLIC OF MALTA 2018
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
RESULTS OF THE ML/TF NATIONAL RISK ASSESSMENT REPUBLIC OF MALTA 2018
Table of Contents
Foreword............................................................................................................................ 4
1. Introduction ...................................................................................................... 5
2. Contextual and structural elements ................................................................ 7
2.1. Malta’s political and legal system ...................................................................... 7
2.2. Malta’s economy ................................................................................................ 8
3. Approach ......................................................................................................... 11
3.1. Process .............................................................................................................. 11
3.2. Methodology .................................................................................................... 12
4. Results of the National ML Risk Assessment .............................................. 15
4.1. Summary Assessment....................................................................................... 15
4.2. National ML Threat .......................................................................................... 16
4.3. ML vulnerability............................................................................................... 18
4.4. ML national combating ability ......................................................................... 23
5. Results of the National TF Risk Assessment ................................................ 25
5.1. National Combatting Ability ............................................................................ 25
5.2. TF threat ........................................................................................................... 28
6. Proliferation Financing .................................................................................. 29
7. Emerging Risks ............................................................................................... 30
7.1. Emerging Threats ............................................................................................. 30
7.2. Emerging vulnerabilities .................................................................................. 31
1A. List of Tables
Table 1: Summary of Malta's ML/TF threat assessment .............................................................. 19
Table 2: Summary of Malta’s ML/TF sectoral vulnerability assessment ...................................... 20
B. List of Figures
Figure 1: Malta's location and geography ...................................................................................... 7
Figure 2: Malta vs EU Real GDP growth (2004-2016) ................................................................... 8
Figure 3: GDP per capita across EU member states (€), 2016...................................................... 9
Figure 4: Breakdown of GDP and labour force by economic sector (2004–2016)......................... 9
Figure 5: Breakdown of GDP and labour force by service sectors (2004–2016) ......................... 10
Figure 6: Schematic representation of the World Bank NRA Tool applied to Malta .................... 13
Figure 7: Heat map on national risk ............................................................................................. 16
Figure 8: Evolution and breakdown of STRs received by the FIAU ............................................. 24
Figure 9: World bank vulnerability rating methodology ................................................................ 26
Figure 10: Market value of crypto-currencies in 2017 ($ BN)....................................................... 31
Figure 11: Initial coin offerings, amount raised ($MM) ................................................................. 32
World Bank disclaimer
The National ML/FT Risk Assessment of Malta has been conducted as a self-
assessment by the Maltese authorities, using the National Money Laundering and
Terrorism Financing Risk Assessment Tool that has been developed and provided by
the World Bank. The World Bank team's role was limited to delivery of the tool,
providing guidance on technical aspects of it and review/feedback to assist with the
accurate use of it. The data, statistics, and information populated into the National
Money Laundering and Terrorism Financing Risk Assessment Tool templates, and any
other finding, interpretation, and judgment under the scope of National Money
Laundering Risk Assessment process completely belong to the Maltese authorities and
do not reflect the views of World Bank.
2Acronyms
4AMLD
4th Anti-Money Laundering Directive (version as of 20 May 2015)
AML Anti-Money Laundering
AMLCFT Anti-Money Laundering and Combatting the Financing of Terrorism
CBM Central Bank of Malta
CVO Commissioner for Voluntary Organisations
DNFBP Designated Non-Financial Businesses and Professions
EU European Union
FATF Financial Action Task Force
FIAU Financial Intelligence Analysis Unit (Malta)
FIU Financial Intelligence Unit
MFSA Malta Financial Services Authority
MGA Malta Gaming Authority (formerly the Lotteries and Gaming Authority)
ML Money Laundering
ML/TF Money Laundering/Terrorism Financing
MLA Mutual Legal Assistance
MONEYVAL Council of Europe Committee of Experts on the Evaluation of Anti-Money
Laundering
Measures and the Financing of Terrorism
MOU Memorandum of understanding
NCC National Co-ordinating Committee on Combating Money Laundering and
Funding of Terrorism
NRA National Risk Assessment
NSO National Statistics Office
Working Group The Working Group established for the purposes of carrying out the NRA
PF Proliferation Financing
PMLA Prevention of Money Laundering Act (Chapter 373 of the Laws of Malta)
PMLFTR Prevention of Money Laundering and Funding of Terrorism Regulations
(Legal Notice 180 of 2008)
STR Suspicious Transaction Report
TF Terrorism financing
3Foreword
The fight against money laundering and terrorism financing is critical to ensuring Malta’s security
and prosperity. Financial crime threatens the safety of our society, the integrity of our financial
system, and the stability of our economy.
Malta is deeply committed to preventing, detecting and prosecuting money laundering and
terrorism financing activities. We have put in place an institutional framework to supervise, gather
intelligence and take legal action against financial crimes. However, we recognise that it should
be further strengthened to be fully effective.
The National Risk Assessment (NRA) is at the centre of the fight against financial crime. The
NRA identifies and assesses Malta’s threats and vulnerabilities. In particular, we have identified
the illegal activities that generate the most proceeds and threaten the most our safety and prosperity
(e.g. local criminal groups, drug trafficking, tax evasion) as well as the sectors that are the most
vulnerable to being abused or misused (e.g. banking, corporate service providers).
The results of the NRA form the basis of Malta’s National AML/CFT Strategy. It enables the
various competent authorities to focus their efforts and allocate resources where the threats and
vulnerabilities are higher. It also helps us to identify a number of “structural” shortcomings in our
institutional framework and, as a result, design an action plan aiming at addressing these
deficiencies. The National AML/CFT Strategy details initiatives that will be implemented in the
next three years in order to strengthen the national mechanisms aimed at preventing, detecting and
prosecuting financial crime.
I am proud to publish this document, which summarises the results of the NRA exercise which
was finalised as of February 2018. The results provide a comprehensive overview of the ML/TF
threats and vulnerabilities that present risks to Malta's economic and societal stability.
I am very grateful to the many public and private sector stakeholders who took part in the
assessment. The completion of the NRA took extensive effort and required a tremendous amount
of cooperation across policy-makers, supervisors, law enforcement agencies, Attorney General,
law courts, judiciary, other authorities and the private sector. Their input was critical to the
development of this report. I would like to thank them for their dedication, continuous support and
involvement.
Updating the NRA results document will be an ongoing and recurring process. We will regularly
update and improve the document so that it takes into account the demographic and economic
evolution of Malta, emerging threats and vulnerabilities, and the evolution of international
standards.
This ongoing process will maintain the dialogue between policy-makers, supervisors, law
enforcement, the judiciary and the private sector so that we can continuously work together to
ensure Malta’s national security, economic stability and financial integrity.
Prof. Edward Scicluna
Minister for Finance
41. Introduction
Money laundering (ML) and terrorism financing (TF) are financial crimes that threaten the world’s
safety, economic stability and the integrity of the financial system. The United Nations Office on
Drugs and Crime (UNODC) estimates that the annual amount of money laundered ranges between
2% and 5% of global GDP.1 The laundering of proceeds of crime supports and incentivises
criminal and terrorist activities. While money laundering is essential to criminal activities as it
allows criminals to integrate, transfer and store the value of proceeds of crime, terrorism financing
enables terrorist activities. However, AML/CFT controls are still not sufficient to prevent, detect
and deter criminal activities. Europol estimates that, during the 2010–2014 period, only ~2.2% of
criminal proceeds were seized and ~1.1% were eventually confiscated in Europe2. Fighting
ML/TF activities is a matter of urgency in the global effort against crime and terrorism.
Malta is deeply committed to preventing, detecting and prosecuting money laundering and
terrorism financing activities. We have put in place an institutional framework to supervise, gather
intelligence and take legal action against financial crimes. However, we recognise that it should
be further strengthened to be fully effective.
As part of its commitment and in line with international standards, Malta completed its first NRA
in 2015 and updated it in 2017. This document summarises the findings and lays out the results of
the exhaustive risk assessment that was finalised as of February 2018, taking into consideration
the various national threats and vulnerabilities in Malta. A wide range of public and private sector
stakeholders took part in the assessment including:
• Policy-makers (e.g. Ministries of Finance, Justice and Home Affairs)
• Supervisors (esp. FIAU, MFSA, MGA)
• Law enforcement authorities (e.g. Police, Customs Department)
• Attorney General
• Law courts
• Representatives of the private sector (e.g. Chamber of Advocates, the College of Notaries, the
College of Stock Brokers, the Federation of Real Estate Agents, the Institute of Financial
Services Practitioners, Malta Bankers' Association, Malta Institute of Accountants)
The NRA was conducted using a wide breadth of data sources, collected from a diverse range of
stakeholders. Qualitative data such as contextual information was used in conjunction with
quantitative data and statistics to enable a comprehensive understanding of Malta’s ML/TF threats
and vulnerabilities.
Insights gained from this exercise form the basis of Malta’s AML/CFT Strategy. It allows for the
identification, assessment, mitigation and monitoring of the ML/TF risks that Malta is exposed to.
These results also serve as the basis to take a risk-based approach to fighting ML/TF (e.g.
prioritising its efforts or the allocation of resources) and to defining an AML/CFT strategy to
address risks that remain too high. This strategy, informed by results of the NRA, is to be prepared
and published in 2018 and shall set out clear actions for all identified competent authorities with
specific timelines up until the end of 2020. Progress against the action plan underlying the national
strategy will be regularly tracked at the national level to ensure Malta’s effort on combating
ML/FT risks in on track.
1 United Nations Office on Drugs and Crime (UNODC), Estimating illicit financial flows resulting from drug trafficking
and other transnational organised crimes, 2011
2 Europol, Does crime still pay? – Criminal asset recovery in the EU, 2016
5The structure of this report closely follows the process undertaken to conduct the NRA based on
FATF recommendations. Section 2 provides an overview of Malta’s political and legal systems
and economy. Section 3 details the NRA approach including the governance, process and
methodology that were used. Section 4 and 5 contain the results of the National Risk Assessment
for ML and TF. Section 6 provides an assessment of proliferation financing risk in Malta and,
finally, Section 7 outlines emerging ML/TF threats and vulnerabilities such as cybercrime,
geopolitical risk and cryptocurrencies.
62. Contextual and structural elements
Malta is an island country which lies 93 km away from Sicily to its north and 288 km from Tunisia
to its south. The Maltese archipelago consists of three main inhabited islands: Malta, Gozo and
Comino. These islands altogether occupy an area of around 316 km2.
Figure 1: Malta's location and geography
Malta is home to a total population of 435,000 in 2016, and is a densely populated country with
close to 1,400 people per km2.3
2.1. Malta’s political and legal system
Malta has been an independent state since 1964 and a constitutional Republic within the
Commonwealth since 1974. Malta joined the European Union (EU) with nine other countries on
1 May 2004. It is the smallest Member State of the EU in terms of both population and area. On
1 January 2008, Malta adopted the Euro and the Central Bank of Malta (CBM) became a member
of the Eurosystem.
Malta is a parliamentary democracy. The President is the Head of State and has executive
authority. The President is elected by the House of Representatives for a period of five years.
Further, the President is responsible for appointing the Chief Justice, as well as the judges who sit
on the independent Constitutional Court and the Court of Appeal. Legislative authority resides
with Parliament. The Prime Minister of Malta is the head of government and cabinet. Cabinet
3 Eurostat, 2017
7oversees the general direction and control of the Government of Malta and is hence collectively
responsible to Parliament.
Malta has a mixed legal system. The Maltese legal system has its roots in the Civil Law
(continental) family, but has absorbed many features of the Common law (British) tradition.
Malta’s laws are regulated by a written constitution, which requires a two thirds parliamentary
majority to amend.
2.2. Malta’s economy
Malta has a small, open economy with a nominal GDP of €9.9 BN, thus contributing ~0.06% to
the EU’s GDP in 2016.4
Malta is one of the fastest-growing economies in the EU with a compounded rate of growth of
~3.3% in 2004–2016, compared with ~1.1% for the EU as a whole. It also proved quite resilient
during the Great Recession of 2008-2010. As shown in Figure 2, this rate of growth has translated
into a cumulative GDP growth of ~50% for Malta vs. ~10% for the EU between 2004 and 2016.
Figure 2: Malta vs EU Real GDP growth (2004-2016)
As a result, Malta’s GDP per capita has increased from €14,300 in 2004 to €20,100 in 2016.5
4 Eurostat
5 Eurostat
8Figure 3: GDP per capita across EU member states (€), 2016
The economy is largely service-based, representing about 70% of GDP. In addition, the service
industry has grown faster than other sectors following accession to the EU in 2004, thus resulting
in an increase of its share in GDP.6
Figure 4: Breakdown of GDP and labour force by economic sector (2004–2016)7
6 Note that the industrial activities of General Government are spread across 21 industries and include local
councils and extra budgetary units that are financial dependent on government
7 Eurostat
9In particular, the gaming, financial and tourism sectors have grown rapidly over the past years.
Figure 5 shows the contribution of the service sectors to GDP and employment since 2004.
Figure 5: Breakdown of GDP and labour force by service sectors (2004–2016)8
The financial sector has developed deep expertise in certain areas and has therefore become an
international financial centre. The financial sector accounts for a large share of the Maltese
economy with ~7% contribution to GDP and ~5% of the labour force. In Malta, the financial sector
relies predominantly on banking and fund management. Currently, there are 28 banks in Malta,
together holding assets worth ~4.7x GDP. Alongside this, the size of the domestic investment
funds expanded to reach a value equivalent to ~16% of GDP in 2016, consisting of 541 Investment
Services (e.g. funds).9 The main driver of the sector is foreign demand, where 80% of the financial
services are purchased from abroad.
The gaming sector is large and has rapidly grown over the past twenty years. The gaming sector
accounted for ~12% of GDP in 2016 and employs over 6,000 people (i.e. ~2% of the labour
force).10 Gaming consists of four land-based companies (e.g. casinos) and 453 licensed remote
gaming companies (e.g. online betting and lotteries). Employment in the land based sector
licensed by the MGA stood at 866 and over 5,300 in remote gaming11.
Tourism plays a significant role in the economy. The number of visitors has grown from 1.33 MM
in 2010 to 1.98 MM in 201612 as a result of a number of factors including: the introduction of low-
cost airlines, the development of improved infrastructure and hotels, the investment of the EU to
restore historic sites, as well as geopolitical instability and terrorism in neighbouring destinations.
8 Eurostat
9 MFSA, Annual Report, 2016
10 Malta Gaming Authority, The Maltese Land-based and Remote Gaming Industry, January-June 2017
11 Malta Gaming Authority, Annual Report 2016
12 Malta Tourism Authority, Tourism in Malta, 2012,2017
103. Approach
The Maltese authorities conducted the NRA through a collaborative approach involving all key
stakeholders (from both the public and private sectors), using the World Bank’s National ML and
TF Risk Assessment Tool (NRA Tool) and FATF guidance.
This section details the process undertaken and the technical methodology used to identify and
assess Malta’s ML/TF risks.
3.1. Process
The process of conducting the first NRA began in November 2013. The first version was
completed in 2015 and was updated in the second half of 2017. In order to mitigate the systemic
weaknesses identified through the NRA, the Maltese Authorities prepared a National AML/CFT
Strategy and underlying action plan.
3.1.1. Project governance and management
The FIAU was responsible for the co-ordination of the exercise. FIAU officials were responsible
for drawing up questionnaires, collecting relevant data, populating templates, organising
workshops in cooperation with the World Bank experts, chairing working group and sub-group
meetings, coordinating efforts with other authorities and private sector bodies and drafting the
report and action plan.
In the summer of 2013 the Board of Governors of the FIAU, with financial assistance from the
Central Bank of Malta and the MFSA, determined that the World Bank’s NRA Tool was the most
suitable methodology for Malta. The Director of the FIAU led the management of the project.
Alongside this, an NRA Working Group was established, composed of a wide representation of
public sector bodies involved in the control and prevention of ML/TF, as well as a number of
private sector representatives.
A number of high-level public officials were appointed to the Working Group. The following
public sector bodies were represented: the Office of the Attorney General, the Police
(representatives from the Legal Office, the Economic Crimes Unit, the Criminal Investigations
Department, the Drug Squad and the Counter-Terrorism Unit), the Customs Department, the
Registry of the Courts of Criminal Judicature, the Malta Financial Services Authority, the Malta
Gaming Authority, the Central Bank of Malta, the Department of Criminology of the University
of Malta, the Ministry of Finance, the Ministry for the Economy, Investment and Small Business,
the Ministry for Home Affairs and National Security, the Inland Revenue Department and the
V.A.T. Department.
Several private sector representatives were invited to form part of the Working Group.
Representatives of the private sector added significant value to the risk assessment of the financial
and “DNFBP” sectors. The following private sector bodies were represented: Chamber of
Advocates, the College of Notaries, the College of Stock Brokers, the Federation of Real Estate
Agents, the Institute of Financial Services Practitioners, the Malta Bankers' Association, the Malta
Funds Industry Association, the Malta Institute of Accountants, the Malta Insurance Association,
the Malta Insurance Managers Association, the Malta Remote Gaming Council and the Society of
Trust and Estate Practitioners. Representatives of the Malta Stock Exchange, money transfer
businesses, land-based casinos, financial institutions and banks also participated in the exercise as
members of the Working Group.
The Working Group started with a three-day workshop run by four experts from the World Bank.
The aim of the workshop was to introduce the NRA Tool and establish applicable milestones.
11Following this, the Working Group was divided into seven sub-groups. The sub-groups continued
to meet throughout 2014 to analyse available data, collect additional information and carry out a
risk assessment of their respective area using the NRA Tool. The national working groups (sub-
groups 1 and 2) composed solely of representatives of public sector bodies, focused on national
threat levels and on the national vulnerability and combatting ability. The remaining sub-groups,
which had the benefit of representation from industry as well as from regulatory authorities and
other relevant public bodies, further considered threats and vulnerabilities at sector level. The sub-
groups were divided as follows:
• Group 1 – Threat Analysis
• Group 2 – National Vulnerability
• Group 3 – Banking Sector Vulnerability
• Group 4 – Securities Sector Vulnerability
• Group 5 – Insurance Sector Vulnerability
• Group 6 – Other Financial Institutions’ Vulnerability
• Group 7 – DNFBP Vulnerability
A further workshop was held in July 2014, once the work of the sub-groups had progressed
substantially. During the three-day event, sub-groups came together to integrate and share results
of their analysis. Preliminary results and outcomes were shared with high level policy-makers
including the Minister of Finance, the Governor of the Central Bank of Malta, the Director General
of the Malta Financial Services Authority, the Attorney General and a representative of the
Commissioner of Police. Following this, preparation for the comprehensive action plan began.
The National Vulnerability Sub-Group generated an overall ML vulnerability for Malta, once each
sub-group had completed their own module. The overall ML vulnerability combined sectoral data
with an additional assessment of the country’s ability to combat ML. Finally, an overall risk level
for Malta was computed on the basis of the conclusions of the assessment of the threat and
vulnerability rating.
3.1.2. NRA document update in 2017
The NRA was updated in the second half of 2017 to reflect recent developments (e.g. in terms of
threats and sectors) and to include some improvements. The results were reviewed and updated
based on new data available and to reflect developments in the form of regulations or supervisory
activity. The relevant competent authorities reviewed and signed off all updates and additions.
3.2. Methodology
The NRA was conducted in a structured manner with a rigorous approach. First, the level of
ML/TF inherent risk (the risk before mitigating actions) was assessed as a function of threats (i.e.
crimes generating proceeds to be laundered) and vulnerabilities (e.g. sectors most exposed to
ML/TF). Then, the national combatting ability of the AML/CFT framework (legal and
institutional) was assessed. These reflect the mitigating measures (i.e. all actions by the
government that can result in a decrease in the overall level of ML/TF risk such as investigation
and prosecution). In addition, the methodology also considers risk of proliferation financing and
risks that are yet to manifest completely (emerging risks) to ensure that the NRA considers existing
risks with an eye on the future.
The assessment of the levels of ML/TF threat, vulnerability and risk was conducted using the
World Bank’s NRA tool. The NRA tool is an Excel-based template that utilises a matrix approach
in assessing the ML and TF risk. The template focuses on the assessment of threats and
12vulnerabilities, with each of the assessment areas containing carefully selected indicators to assess
threats and vulnerabilities. Note that the primary focus of the NRA tool is ML risk, while an
additional, more concise module is focused on the assessment of TF risk.
3.2.1. NRA Tool
The NRA Tool provided the Working Group with a structured model to enable the collection of
all required data and statistics. Once the information was inputted into the NRA Tool, a rating for
overall national and sectoral ML vulnerability was produced. These outcome ratings highlighted
priority action areas. The four World Bank experts, assigned to this project, provided advice and
support during the completion of the NRA process and reviewed the draft documents produced by
the Working Group.
The risk analysis for terrorism financing and proliferation financing was carried out by a separate
sub-group. The NRA Tool focused primarily on ML. TF risk was considered separately using a
similar methodology to the one used to cover the assessment of ML threats and vulnerabilities.
Figure 6 illustrates the structure of the NRA Tool. The separate chapters of this report address the
respective parts of the structure, providing analysis and key findings.
Figure 6: Schematic representation of the World Bank NRA Tool applied to Malta
3.2.2. Data and limitations
The data for the NRA was collected and analysed in line with the FATFs guiding principles on
AML/CFT related data and statistics13. As recommended by FATF, Malta had one designated lead
13 FATF, AML/CFT-Related Data and Statistics, 2015
13agency, the FIAU, take the role of lead agency in the data collection process. The FIAU identified
and approached all relevant institutions involved in the AML/CFT regime to collect the relevant
data required to achieve an exhaustive risk assessment.
A wide breadth of data was leveraged for the assessment including data on international
cooperation, AML/CFT supervision, financial intelligence, AML legal systems and operational
issues, TF and financing of proliferation. Contextual information and qualitative data were used
alongside quantitative data and statistics allowing for a comprehensive understanding of Malta’s
ML/TF threats and vulnerabilities.
Using the World Bank NRA Tool, National ML and TF risk were calculated based on a function
of Malta’s threats and vulnerabilities. ML threat was calculated based on an assessment of
statistics regarding ML proceeds of both domestic and foreign crimes.
National ML vulnerability was assessed as a function of residual sector vulnerability and national
combating ability. To assess residual sectoral vulnerability, each sector outlined in FATFs
guidance and additionally the gaming sector were assessed based on the inherent vulnerability
present and the quality of AML/CFT controls in place. This was assessed alongside quantitative
and qualitative data on Malta’s national combatting ability including policy and implementation,
criminalisation of ML, criminal investigation, prosecution and conviction, asset forfeiture and
access to reliable information and evidence.
For the risk of TF on the other hand, the World Bank Model is set out in a way which means a
rating is not produced through the sum of input variables but through consideration of the
evidence.
The data and statistics used as risk analysis input into the NRA Tool covered the three-year period
up to the end of 2013. Some sub-group assessments were able to update data up to the end of 2014.
Additional data was collected in the second half of 2017 for those sectors that had significantly
changed in the last 3 years. This includes organised crime, gaming, drug trafficking, banks and
TCSPs.
Statistics used for this exercise by the courts and the law enforcement and prosecutorial bodies
concerned, had limitations which although they are now being addressed, somewhat inhibited the
members of the Working Group in their review. In fact, “ad hoc” exercises were eventually carried
out to collate data that was not maintained previously.
The NRA is an ongoing process as it serves to identify the actions to be taken to reduce the
country’s level of vulnerability to ML/TF. As progress is made and new factors are brought into
play, priorities will change. Consequently, the NRA document will need to be updated to reflect
both the positive developments and also any new realities or challenges. Maltese Authorities are
currently working with the National Statistics Office to put in place processes that will automate
and ease the process of obtaining latest data to allow for regular updates to the NRA document.
144. Results of the National ML Risk Assessment
This section provides an overview of the National ML threats and vulnerabilities based on findings
of the Working Group in relation to the assessment carried out in Malta as at 2017. Threats are
measured in terms of exposure to ML of domestic proceeds of crime and foreign proceeds of crime
while vulnerabilities are measured on a sector level.
Overall, ML/TF risk in Malta was rated as Medium – High and is primarily driven by three
components:
• By the threat of foreign proceeds of crime (especially given the size and openness of the
economy and financial system) and, domestically, by local criminal groups and tax evasion
• Sectoral vulnerabilities reside primarily with international business activities, especially the
relatively large banking, securities, gaming and DNFBP sectors
• Malta has established a legal and institutional AML/CFT framework; however, the capacity
and expertise of law enforcement agencies are not sufficient to fully support investigations,
prosecutions and asset recovery, thus translating into low levels of convictions and
confiscation compared with the ML/TF risk profile
In addition, a number of institutional deficiencies have limited the effectiveness of domestic
efforts to mitigate ML/TF risks, including: the lack of a national coordination mechanism (though
this is being addressed currently through the set up a National Coordinating Committee), the lack
of transparency of the ownership of legal entities and arrangements (legislation to address these
deficiencies was enacted by the end of 2017), and limited capabilities (e.g. lack of resources,
scarcity of expertise, and limited use of adequate IT tools).
4.1. Summary Assessment
Upon the completion of the NRA, the level of ML risk in Malta was computed on the basis of the
findings of the Working Group on the overall threat to which the country is exposed, the
vulnerabilities of its combatting abilities and the vulnerabilities of its financial and DNFBP
sectors. The ML risk was plotted on the heat map in
as a sum of the overall threat rating of Medium-High and a vulnerability rating of Medium.
The overall ML risk for Malta was rated as Medium-High.
15Figure 7: Heat map on national risk
H
National
MH
Risk
M
Overall Threat
ML
L
L ML M MH H
Overall Vulnerability
Low risk
Low to medium risk
Medium risk
Medium to high risk
High risk
4.2. National ML Threat
The report provides an overview of the findings of the Working Group in relation to the assessment
carried out on the ML threat to which Malta is exposed as a jurisdiction both in terms of predicate
offences committed within its territory and outside its territory when Malta may be used as a pass-
through jurisdiction. The report highlights the fact that Malta is an international financial centre
and therefore provides a platform for transactions and operations of a diverse nature to take place
through its financial system.
The exercise aimed at assessing and determining the ML threat in Malta was coordinated by a
sub-group of the Working Group chaired by an official of the Financial Intelligence Analysis Unit
(FIAU), which also included high level representatives from the Office of the Attorney General,
the Enforcement Unit of the Malta Financial Services Authority (MFSA), the Police force, the
Courts of Justice and the Criminology Department of the University of Malta.
The sub-group was largely responsible for completing two sets of input variables. The first set
aimed at identifying the ML threat arising from predicate offences committed in Malta and
included several variables on proceed-generating offences, including the number of police
investigations with regard to each offence, the number of prosecutions, and information
originating from STR among other relevant information which could be indicative of the ML
threat arising from each predicate offence.
16The second set of variables aimed at identifying the level of ML threat arising from predicate
offences which were committed outside Malta. For this assessment, the World Bank’s threat
assessment tool included financial as well as on financial information such as information on trade
statistics, the volume and value of cross-border financial transactions and information from
international requests for mutual legal assistance.
The input variables were assessed and rated in accordance with the descriptions and criteria
outlined in the methodological document that had been circulated by the World Bank.
Although the sub-group gave due consideration to the statistical and other data made available to
them to the largest extent possible, a number of ratings were necessarily based on the reasoned
perceptions and judgement of the members of the sub-group who are highly experienced in their
area of expertise.
4.2.1. Money laundering of domestic proceeds of crime
The exercise to assess and quantify the ML threat arising from predicate offences committed in
Malta was carried out through the review of data obtained from the Financial Intelligence Analysis
Unit (the Maltese FIU), the Police, the Inland Revenue Department and the Attorney General’s
Office. A rating outlining the level of ML threat arising from each offence was assigned to the
different money-generating offences taken into consideration. In the absence of any information
being maintained by any authority in Malta on the actual rate of crimes committed in Malta, the
ratings assigned to the separate predicate offences were based on the data relating to the number
of investigations by the Police, the FIAU and the tax authorities, the number of cases prosecuted
and the value of the criminal proceeds generated from the offences. The overall ML threat arising
from domestic predicate offences has been rated as Medium-High.
The level of ML threat posed by the different domestic offences assessed has also been categorized
separately according to whether these offences pose a high, medium or low risk to the jurisdiction.
4.2.2. Money laundering of foreign proceeds of crime
The external ML threat assessment examined the ML threats to which Malta may be exposed as a
jurisdiction. The focus of the exercise was the potential laundering of funds originating from
predicate offences committed abroad. For this purpose, the sub-group took into account an
extensive range of factors which identify the recorded dealings, transactions and relations with all
other countries. Data from a representative number of entities and authorities was then gathered
and considered within the context of other non-quantifiable factors in order to assess the level of
ML threat posed by each country.
The statistical data used for the purposes of determining the extent of the external threat included
the following information:
• Trade-related financial inflows and outflows;
Financial inflows and outflows through the banking system;
Requests for information received by the tax authorities in Malta;
Requests for information made by the tax authorities in Malta;
Cross-border cash declarations;
17 Requests for information received by the FIAU from other FIUs;
Requests for information made by the FIAU to other FIUs;
Values of financial inflows and outflows sent via money remitters;
Requests for Mutual Legal Assistance received and sent by the Maltese authorities; and
The links to specific countries in STRs received by the FIAU and in FIU requests received by
the FIAU.
The data was examined carefully and, using the NRA Tool, the flows of funds from twelve
countries were identified as constituting the main external threat of ML to Malta.
For the purpose of this exercise, the ML threat rating assigned to the countries has been sub-
divided into four categories – High, Medium-High, Medium and Low.
4.3. ML vulnerability
This section summarises the findings of the sectoral vulnerability assessment which outlines the
level of ML vulnerably that Malta’s major sectors are exposed to, namely banking, securities,
insurance, gaming, other financial institutions and DNFPBs.
Malta’s sectoral vulnerabilities are mostly driven by its open economy and large financial sector
(especially banking and securities), gaming sector (especially remote gaming) and DNFBPs
(especially TCSPs, legal professionals, real estate). Supervisors have recently intensified their
efforts to regulate and supervise high risk sectors, and sanction non-compliant entities. In 2016,
96 on-site AML/CFT examinations were conducted by the FIAU and the MFSA, effectively
doubling the number of on-site inspections since 2014. Gaming companies became subject
persons in January 2018 when the MGA began ramping up to start conducting AML/CFT
inspections. In addition, dedicated resources have increased the number of supervisors. However,
the number and value of reprimands and penalties remains challenging.
The Maltese economy is a cash-intensive economy where many sectors still rely significantly on
cash transactions. Cash transactions can be found in the real estate and luxury goods sector. The
extensive use of transferable cheques is an ML/TF vulnerability as it obscures the link between
the payment and payer.
18Table 1: Summary of Malta's ML/TF threat assessment
Overall threat Threat
Threat category level Sub-category level
Money laundering Medium-High Tax evasion High
of domestic
proceeds of crime Local criminal groups High
Drug trafficking Medium-
High
Fraud and Medium-
misappropriation High
Corruption and bribery Medium-
High
Smuggling Medium
Theft and receipt of stolen Medium
goods
Armed robbery Low
Living of the earnings of Low
prostitution
Usury Low
Illegal gambling and Low
violations of the Gaming
Act
Human trafficking Low
Arms trafficking Low
Smuggling of persons Low
Unlicensed financial Low
services
Money laundering High ML of foreign proceeds of
of foreign crime threat level has been
proceeds of crime calculated for a number of
countries
19Table 2: Summary of Malta’s ML/TF sectoral vulnerability assessment
Sector vulnerability Sub-sector vulnerability
Sector Sub-sectors
Inherent Residual Inherent Controls Residual
Banking High Medium- Core domestic banks High Medium- Medium-
High low High
Non-core domestic & High Medium- Medium-
international banks low High
Securities Medium-High Medium- Collective investment Medium- Low Medium-
High schemes High High
Custodians Medium- Low Medium-
High High
Foreign exchange Medium- Low Medium-
High High
Fund administrators Medium- Low Medium-
High High
Fund managers Medium- Low Medium-
High High
Stockbrokers Medium Low Medium
Insurance Medium Medium Insurance Medium Medium- Medium
low
Other Financial Medium-High Medium- Payment services High Medium- Medium-
Institutions High low High
Lending Medium- Medium- Medium-
Low low Low
Other activities Medium Low Medium
Gaming Medium-High Medium- Land based gaming Medium Medium- Medium-
High low Low
Remote gaming High Low High
14
DNFBP High High Company service providers High Low High
Lawyers High Low High
Trustees and fiduciaries High Low High
Notaries public Medium- Low Medium-
High High
Accountants and auditors Medium- Low Medium-
High High
Real estate agents Medium- Low Medium-
High High
Dealers in high value goods Medium Low Medium
14 Excluding legal and accounting professions acting as company service providers
204.3.1. Sectoral ML vulnerability Financial sector While the banking sector is inherently exposed to ML/TF due to the nature of the products offered and the volume of clients and transactions, the sector’s controls are generally more mature than other sectors. The six core domestic banks hold €21.8 BN of assets (i.e. ~220% of GDP) and employ a total of ~3,300 employees, the five non-core domestic banks hold €2.5 BN of assets (i.e. ~25% of GDP)15 and undertake limited business with Maltese residents, and the remaining 14 international banks mostly serve large, international corporates and hold €22.5 BN of assets (~230% of GDP). A number of the products and services offered by core, non-core and international banks present ML risk, such as non- retail deposits, correspondent accounts, wire transfers and wealth management services. This is predominantly due to the banking sector’s large size and exposure to foreign investors. While some banks are enhancing their AML/CFT controls, recent inspections show that the controls in place in some banks remain insufficient to effectively prevent ML/TF. An increase in efforts and resources at the FIAU and MFSA resulted in an increase in the number of inspections to reach 37 in 2016. However, the result of supervision remains limited, as reflected in the enforcement outcomes: for instance, Credit Institutions only received penalties of approximately €80,000, based on just 6 penalties in 2016. The securities sector’s vulnerability to ML/TF is primarily driven by its high volume of transactions and the limited capacity and resources of the authorities to carry out regular AML/CFT supervision across the sector. In 2016, there were 45116 licence holders within the securities sector. Foreign exchange traders are exposed to higher levels of vulnerability than other licensed entities within the securities sector, due to the high volume of transactions. This is compounded by the speed with which transactions are completed, the non-face-to-face nature of the transactions and the use of pre-paid cards. Transactions with international centres and services to high net worth individuals are also identified as factors that contribute to the high level of vulnerability. While certain, generally larger securities firms have established suitable AML monitoring systems and corporate transparency mechanisms, quality of controls in the securities sector is generally low. This is partly due to limited resources and focus of supervisors to ensure adequate supervision and enforcement. Numbers of inspections have however increased from one on-site examination in 2016 to 19 in the first three quarters of 2017. Among the other financial institutions, payment and e-money financial institutions are particularly exposed due to the transactional nature of the activity, the volume of transactions of the sector, and the number of entities involved (30 payment licenses and 13 e-money licenses17). Lending providers are however relatively small and the nature of their activities is less risky than deposit-taking and transactional activities (e.g. payments). The insurance sector is generally less exposed to ML due to the nature of its activities and the size of the sector in Malta. The domestic life insurance sector is relatively small (gross written premiums of €3.7BN for long-term insurance vs. €2.6 BN for general insurance) and limited to 8 licensees. New pension products have grown rapidly since amendments to the regulation in 2016 and may present some vulnerabilities given the nature of most products (personal retirement schemes), the size of the schemes (a total of €3.7 BN of assets under management18) and the number of products (49 schemes and 2 funds19). 15 Central Bank of Malta, Ninth Financial Stability Report, 2016 16 MFSA, Annual Report, 2016 17 MFSA, Statistical Tables, September 2017 18 MFSA, Annual Report, 2016 19 MFSA, Statistical Tables, September 2017
Gaming sector
Malta has a large gaming sector representing ~12% of GDP.20 It consists of land-based companies (e.g.
casinos, betting shops) and remote gaming companies.
There are four land-based casinos operating in Malta. Total gross gaming revenue (GGR) amounted
to ~€45 MM. Other land-based gaming entities involve activities that are less vulnerable to ML/TF (e.g.
bingo, lottery) or generate low GGR.
As of June 2017, 275 remote gaming companies operate in Malta, holding a total of 558 remote gaming
licences. Remote gaming is inherently vulnerable to ML due to the high number of customers (~12 MM
active customer accounts), high volume of transactions (e.g. GGR reaches close to ~€3 BN), the non-
face-to-face nature of the business, the high percentage of non-resident customers and the use of prepaid
cards that are not linked to a bank account. This is further evidenced by the high number of STRs
received. Certain remote gaming activities are more vulnerable than others. For instance, P2P and sports
betting are more exposed than bingo or lotteries as they involve a transfer of value or predictable,
low losses.19
While the remote gaming sector has been subject to some AML/CFT regulations for a number of
years21, it will become a subject person under the PMLFTR starting in January 2018.22 The MGA and
FIAU will supervise the sector more effectively with a comprehensive AML/CFT supervisory
approach, incl. risk assessments, off-site and on-site inspections and enforcement actions. The MGA
has already formed an AML/CFT-dedicated team of five members (to increase to at least eight) which
will supervise the sector (e.g. 40–50 AML/CFT-focused inspections annually). The MGA also plans to
finalise its risk-based approach (e.g. entity-level risk assessment), update its AML/CFT policies &
procedures to reflect the 4AMLD, and conclude a MoU outlining its cooperation with the FIAU.
Other Designated Non-Financial Businesses and Professions (DNFBPs)
The ML risk assessment of each sub-category was carried out separately in view of the big differences
that exist in the activity carried out and the type of products and services offered. As such, each sub
sector includes, in addition to the vulnerabilities and quality of controls assessment, also an analysis of
the sectoral threats.
Trust and company service providers (TCSPs) are exposed to ML/TF as companies, complex
corporate structures and legal arrangements are vulnerable to abuse or misuse. Such vehicles are known
to have been used to obscure beneficial ownership and complicate the tracing of proceeds of crime. The
TCSP sector is particularly large23 and handles a high volume of international business. While TCSPs
are regulated by the MFSA and subject to the PMLFTR, not all company services providers are
officially registered, and AML/CFT inspections and enforcement currently do not reflect the risk profile
of the sector. In 2017, the supervisors conducted 27 on-site inspections.
Similarly, legal and accounting professionals are exposed to ML/TF given the nature of their activities
and in many instances, the international nature of their activities. There are 1,415 legal professionals in
Malta, however only a proportion of these carry out “relevant activity”, as described in the PMLFTR,
and hence not all legal professionals fall under the relevant regulation. When carrying out “relevant
activity”, the legal profession often handles many international clients and faces challenges with regards
to the identification of non-face-to-face clients. The weakness in controls is driven by a low level of
20 NSO
21
In particular, licensing requirements under Lotteries and Other Games Act 2001 (Chapter 438 of the Laws of
Malta) and some AML obligations under Remote Gaming Regulations 2004 (Subsidiary Legislation 438.04)
22 Note that some remote gaming companies filed STRs before the enforcement of the PMLA (87 STRs in 2016)
23 There are ~260 registered CSPs; however it is believed that not all CSPs are officially registered
22supervision of those lawyers who carry out a relevant activity and would therefore be subject to AML/CFT regulations. The absence of a special law regulating the profession, apart from ethical standards issued by and subject to monitoring by the Commission for the Administration of Justice is a relevant weakness in terms of the controls in place. In addition, the ~3,000 accounting professionals’ exposure to ML/TF is attributable to the large size of the sector and the fact that some of the services they provide are considered to be particularly vulnerable to misuse for ML purposes. The measures in place to mitigate the risk are not effective enough as reflected by the limited number of STRs received, as well as observations made during on-site visits. Notaries are particularly exposed to ML/TF with regards to real estate transactions. Notaries are public officers warranted to receive acts done by any person during his/her lifetime and to attribute public faith to those acts.24 At present, there are 299 notaries in Malta. In 2016, the FIAU carried out onsite inspections for 53 accounting firms, notaries, advocates, tax advisors and legal procurators, representing only a small fraction (
Figure 8: Evolution and breakdown of STRs received by the FIAU
While Malta has put in place a legal framework to prosecute ML/TF, the Police Economic Crime Unit
and the Attorney General’s office lack sufficient staff and specialisation, access to databases, and
analytical tools to tackle complex third-party money laundering cases.27
While the FIAU and the Police are responsive in international cooperation (e.g. FIAU responds
promptly to the 100-130 requests every year and makes 110–180 requests to foreign FIUs, and the
Police received ~40 MLA requests last year), there is limited data on MLAs sent to foreign authorities.
The ability to trace, freeze and forfeit the proceeds of crime has been limited so far. To date, the Police
and Courts play the role of Asset Recovery Office; however, their staff and expertise are ill-equipped
to deal with these tasks. This explains the low number and value of assets frozen and confiscated. For
example, in 2014, only 83 freezing orders were made by the Courts leading to a sum of ~€90,000
forfeited in favour of the Government of Malta28. The establishment of a dedicated Asset Recovery
Bureau is expected to enhance the ability to trace, freeze and forfeit the proceeds of crime.
27Refers to cases where external facilitators help criminal organisations and terrorists conceal illicit funds.
Examples include attorneys, accountants, investment managers, trust companies and real estate professionals.,
Business Crimes Bulletin, Third-Party Money Launderers, 2017
28 Ministry of Justice, Annual Report, 2014
245. Results of the National TF Risk Assessment
This section provides an overview of the TF threats and TF vulnerabilities present in Malta, identified
by the National TF Risk Assessment. In the World Bank model for TF, a risk rating is not produced
through the sum of these input variables but through consideration of the evidence.
Although there was no hard data to suggest that Malta is particularly exposed to TF, there are a number
of other factors which cannot be ignored and should drive the authorities to maintain a high level of
scrutiny and to ensure that defences are at their highest levels.
As such, although the effectiveness of the Maltese system to address terrorism and TF as a specific
threat is generally untested, the TF risk for Malta has been rated as Medium-High. The level of risk was
calculated on the basis of an assessment of the threat, rated as Medium-High, and a Medium-High
vulnerability rating.
5.1. National Combatting Ability
The 24 National Combatting Ability input variables were divided into five key sections:
• Policy and Implementation;
• ML Criminalisation;
• Criminal investigation, prosecution and conviction;
• Asset forfeiture;
• Access to reliable information and evidence.
5.1.1. Process
The 24 input variables relating to the country’s national combatting ability, together with certain
country-specific factors, were assessed and rated in accordance with the descriptions and criteria
outlined in the methodological document that had been circulated by the World Bank. Although the
sub-group gave due weight to the statistical data and other information made available to them, for a
number of ratings reliance had to be made on the reasoned views and judgement of the experienced
officers involved in the process.
Although Maltese authorities have always claimed during the course of mutual evaluations carried out
by international assessment bodies that the ML and TF risks in Malta are low, this assessment has never
been based on a scientific study grounded in empirical evidence. Similarly, an actual comprehensive
assessment of the AML/CFT vulnerabilities to which the jurisdiction is exposed on the basis of its
geographical location, the effectiveness of its regulatory authorities, its ability to combat crime, systems
in place for the formulation of national policy, national coordination, capacity to exchange information
with foreign authorities and other relevant criteria, has never been carried out.
For the country’s assessment to be reliable it must take into consideration the particular characteristics
of the country and its financial sector, an area that has evolved considerably over the past fifteen years.
Malta is today a jurisdiction that is an international business and financial centre, it has a competitive
tax regime that attracts investment by non-residents and has a thriving gaming sector. The authorities
are, in fact, aware that the increasing growth in these sectors present accompanying AML/CFT risks
25which need guarding against and proportionate preventative, supervisory and law enforcement
structures.
The national vulnerability assessment was coordinated by a sub-group of the Working Group chaired
by an official of the FIAU, which also included representatives from the Office of the Attorney General,
the MFSA, the Central Bank of Malta (‘CBM’), the Money Laundering Section of the Economic Crimes
Unit of the Police force, the Ministry for Finance, the Ministry for the Economy, Investment and Small
Business, the Inland Revenue Department, the Criminology Department of the University of Malta and
the Malta Gaming Authority, .
The sub-group was largely responsible for completing the input variables dealing with the national
combatting ability. Upon completion of this exercise, the vulnerability ratings generated by the sub-
groups involved in the assessment of the banking, securities, insurance, financial institutions and
DNFBP sectors were factored into the assessment for the overall national vulnerability rating to be
determined.
5.1.2. Combatting Assessment
This assessment is derived from a national combatting ability that has been rated as Medium and a
Medium-High sector vulnerability.
The overall national vulnerability has been rated at 0.6 (a Medium rating, which however leans towards
the higher side of the medium range). The vulnerability ratings were assigned in accordance with the
World Bank methodology on a scale ranging from 0.0 to 1.0, with each additional decimal point
representing a progressively higher level of vulnerability:
Figure 9: World bank vulnerability rating methodology
High
(0.81 – 1.0)
Medium–
High
Medium
(0.61 – 0.8)
(0.41 – 0.6)
Medium/Low
(0.21 – 0.4)
Low
(0.0 – 0.2)
Going forward, it is envisaged that improvements will be made by the country upon implementation of
the action plan accompanying this report. Various issues identified will be addressed, thereby reducing
the specific and overall vulnerability ratings and the consequential risk.
Besides the specific vulnerabilities for the sectors examined, the vulnerability rating is also largely
driven by shortcomings in the national combatting ability, such as the area of investigation, prosecution,
conviction and asset forfeiture.
26You can also read
